As he stepped to the podium, Matt Simmons, chairman of Simmons & Co., reminded his audience it was the 39th anniversary of Earth Day and the 40th of the Santa Barbara oil spill. Those two events, he said, caused war between the energy industry and green movement.

“The energy industry has been routed in battle by the greens,” Simmons said. “How has it happened that the world’s biggest, most important industry has failed so miserably?”

Simmons, a well known energy analyst, investment banker, and author of Twilight in the Desert, a 2005 close look at the Saudi Arabian oil industry. He was speaking at the symposium “Strategies for high performance in volatile times,” recently presented by Hart Energy Publishing and Oracle Corp.

Simmons went on to pose an even bigger question: if economies based on oil and gas as a primary energy source are not sustainable, how will civil society continue?

The oil industry’s aging work force and infrastructure — inadvertent byproducts of cyclical discontinuities between 1) costs and price, and 2) supply and demand, as well as the reality of “peak” oil, Simmons said, constitute grave threats to sustained reliance on hydrocarbons as the energy source that fuels globalization. And as yet, he further asserts, there is no viable near-term alternative.

The price of oil rose 15-fold in the last decade, Simmons said, “and at each point, a new culprit was blamed. With the price at (US) $150, speculation in oil futures was the supposed cause.”

“Nine months ago, there were shortages of everything,” he added, which caused costs to spiral out of control. For example, the Kashagan project in Kazakhstan, is now dubbed “cash-is-gone;” the price tag for Shell’s Pearl GTL project in Qatar to bring North field gas to shore has more than doubled to $20 billion and rising; and its the same for Kuwait’s oil refinery rebuild and expansion efforts.

The real reason the price rose is simple, Simmons said. Demand grew 13 million b/d while supply grew just 7 million b/d. “Yet even today, at $50 a barrel, people imagine the price is too high.”

Further, unless average retirement age is extended in an unprecedented manner, Simmons said, something like two-thirds of the industry’s workforce will be due to retire in the next five to seven years. “The skills shortage became painfully obvious last summer, but the problem could have been foreseen. Yet the industry hired only sporadically from 1982 forward while downsizing often and on the basis of seniority.”

More recently, with the ongoing credit freeze, oil prices fell 74% in three months, and natural gas prices fell even further. In the last 15 weeks, the industry let go more than 30,000 people, said Simmons. “This is the single biggest mistake we’ve ever made.”

With “98% of the infrastructure” for getting oil out of the ground and gasoline to the service station made of steel, saying “rust never sleeps” becomes something more than a non sequitur. Much of this infrastructure, Simmons said, though beyond its intended design life, remains in use. And despite incremental improvements, he maintained, corrosion control isn’t much better today than it was in the 1960s.

While the average age of offshore drilling rigs is 29 years, more than 6 million miles (9.6 million km) of pipeline is installed in the US, some of it 80 years old.

Rebuilding 70% of the hydrocarbon infrastructure, Simmons said, might cost anywhere from $50 to $120 trillion. Rebuilding the pipeline system alone might cost $16 trillion.

The reason only 70% of the infrastructure needs rebuilding, said Simmons, is that peak oil was reached in 2005. Productive capacity by 2015 may not exceed 60 million b/d.

Furthermore, no viable alternative fuel stands on the horizon. Simmons maintained the following: Hybrid vehicles aren’t going to be 15% of the vehicle fleet within a decade, as some have predicted. Corn ethanol is a scam. Battery technology will improve only incrementally. Wind is difficult but may be useful. Natural gas will continue to grow in importance, but unfortunately US producers have already throttled back on supply based on the market’s misunderstanding of the fundamentals.

So while many think $75 a barrel is too high a price, for Simmons, $150 is too low. At that price, “supply didn’t grow, rust didn’t end, and the people of Nigeria weren’t brought out of poverty.” It may be, he said, that the fair price is somewhere between $500 and $700.

Simmons predicts that within the next five to seven years, many people will work from home and be paid based on their productivity, bringing much long-distance commuting to an end. Moreover, goods will be produced near to their point of use, and almost any form of transportation will be favored over long-haul trucking.

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